Can a Company Issue a Fresh Private Placement Before Filing PAS-3?

Can a Company Issue a Fresh Private Placement Offer Before Filing PAS,3 for the Earlier Allotment?, Section 42 of the Companies Act, 2013

Summary: The article explains whether a company can issue a fresh private placement offer before filing Form PAS-3 for an earlier allotment under Section 42 of the Companies Act, 2013. It states that a fresh private placement offer may be made once the earlier allotment has been completed through the Board’s allotment resolution, as Section 42(3) links the restriction on a fresh offer to completion of allotment rather than filing PAS-3. However, it distinguishes this from the separate restriction under the proviso to Section 42(4), which prohibits utilisation of monies raised through the earlier private placement until the return of allotment in Form PAS-3 has been filed with the Registrar. The article outlines the applicable statutory provisions, procedural requirements, practical compliance steps, penalties for contravention, and an illustrative example, while noting that no exemption relaxes these requirements for private companies, Section 8 companies, Small Companies, OPCs or Specified IFSC companies. It also states that there is no reported NCLT or NCLAT ruling directly addressing the interaction between Sections 42(3) and 42(4) in this context.

The Issue in Brief

Private placement under Section 42 of the Companies Act, 2013 moves through a sequence, offer letter, subscription, allotment, and a return of allotment filed with the Registrar in Form PAS,3. A company that has closed its offer, received the money and passed the Board resolution allotting shares, but has not yet filed PAS,3, often wants to know whether it can open a second private placement in the meantime. The answer turns on reading two closely related but distinct restrictions in Section 42 correctly, one that governs when a fresh offer may be made, and a separate one that governs what the company may do with the money it has already raised. Conflating the two is the most common way this question gets answered wrong in practice.

What the Law Says

Yes, the company can issue a fresh private placement offer even though PAS,3 for the earlier allotment is still pending, provided the earlier allotment has actually been completed, which it has, once the Board has passed the resolution allotting the shares. Section 42(3) ties the bar on a fresh offer to completion of allotment, not to filing PAS,3. However, this does not give the company a free hand with the money already raised: under the proviso to Section 42(4), the company cannot utilise the funds raised through the earlier private placement until the return of allotment (PAS,3) for that round has actually been filed. The two restrictions operate independently and both need to be tracked.

Applicable Legal Provisions

• Section 42(1) and (2), Companies Act, 2013, a company may make a private placement offer only to identified persons, subject to a cap of 200 persons per kind of security in a financial year (excluding Qualified Institutional Buyers and persons receiving an offer under an employee stock option scheme); an offer beyond that cap is treated as a deemed public offer.
• Section 42(3), Companies Act, 2013, no fresh offer or invitation may be made under this section unless the allotment with respect to any earlier offer or invitation has been completed, or that earlier offer or invitation has been withdrawn or abandoned by the company.
• Section 42(4), Companies Act, 2013 (proviso), a company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with Section 42(8).
• Section 42(6), Companies Act, 2013, securities must be allotted within sixty days of receipt of the application money; failing which the money must be refunded within fifteen days, with interest at 12% per annum thereafter if not refunded within that window.
• Section 42(8), Companies Act, 2013 read with Rule 14, Companies (Prospectus and Allotment of Securities) Rules, 2014, the company must file a return of allotment in Form PAS,3 with the Registrar within fifteen days of allotment (reduced from thirty days by the Companies (Prospectus and Allotment of Securities) Third Amendment Rules, 2018).
• Section 42(9) and (10), Companies Act, 2013, penal consequences for contravention of Section 42, including liability of the company, its promoters and directors.

Relevant Extracts

Section 42(3): “No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.”

Section 42(4), proviso: “…a company shall not utilise monies raised through private placement unless allotment is made and the return of allotment is filed with the Registrar in accordance with sub,section (8).”

Legal Position

Section 42 draws a clear line between two different stages of a private placement, and Sections 42(3) and 42(4) each attach a different consequence to a different stage:

Allotment, for this purpose, is completed when the Board passes the resolution allotting the securities to the identified applicants and the company’s register of members is updated accordingly, PAS,3 is a return that reports that allotment to the Registrar after the fact; it is not a pre,condition to the allotment itself being complete. Section 42(3) is worded around completion of allotment, so once the Board resolution allotting shares has been passed, the bar on a fresh offer lifts, regardless of whether PAS,3 has been filed yet.

Section 42(4)’s proviso operates on an entirely different trigger. It does not ask whether a fresh offer is being made, it asks whether the company is touching the money from a completed allotment before reporting that allotment to the Registrar. A company can therefore be fully entitled to launch a second private placement under Section 42(3), while remaining barred under Section 42(4) from using the first round’s money until PAS,3 for that round is on file. Meeting one condition does not automatically clear the other, and each restriction has to be checked on its own terms.

Exemptions / Relaxations

No private company, Section 8 company, Small Company, OPC or Specified IFSC company exemption relaxes either the Section 42(3) fresh,offer condition or the Section 42(4) money,utilisation condition private placement compliance under Section 42 applies uniformly regardless of the size or class of the company issuing the securities. The only class,specific variation of note is that Specified IFSC public companies are exempted from the requirement of a special resolution for each private placement offer, which is a different point and does not touch the two restrictions discussed here.

Case Laws / Professional Interpretation

There is no reported NCLT/NCLAT ruling specifically on the interplay between Section 42(3) and Section 42(4) in this fact pattern. The professional view set out above follows directly from the plain text of the two provisions read together, and is the position consistently taken in practice: professionals who delay a fresh private placement purely until the earlier PAS,3 is filed are following a cautious internal practice to keep the MCA compliance trail visibly clean, not a statutory requirement, the Act itself does not make PAS,3 filing a condition for opening a fresh offer.

Practical Interpretation

On the facts in the query, offer closed, subscription money received, Board resolution passed allotting the shares, PAS,3 still pending, the recommended course of action is:

• File PAS,3 for the first allotment within 15 days of the date of the allotment resolution; this is already running and should be treated as the priority action, independent of any decision on a second placement.
• The company may proceed to open a second private placement (fresh Board resolution, fresh special resolution unless an exemption applies, fresh PAS,4 offer letter, fresh PAS,5 record of offerees, and compliance with the 200,person,per,security,type,per,financial,year cap counted separately for this round) without waiting for the first PAS,3 to be filed.
• Do not utilise the subscription money already received under the first round, including transferring it out of the separate bank account into which it was required to be kept, or applying it towards company expenses, until PAS,3 for that round has actually been filed. This restriction applies regardless of whether or when the second placement is opened.
• Once money is received under the second placement as well, the same Section 42(4) restriction applies afresh to those funds, they too remain unutilisable until PAS,3 for the second round is filed.

Contravention of Section 42 carries a specific penalty under Section 42(10): the company, its promoters and directors are liable to a penalty which may extend to the amount raised through the offer or ₹2 crore, whichever is higher, along with a requirement to refund all money to subscribers within a prescribed period. This figure should be verified against the Act as it stands on the date of advice, given how frequently the penalty provisions under Chapter III have been revised since 2013.

Example

ABC Private Limited closed a PAS,4 offer on 1 July, received ₹50 lakh in subscription money into its separate private placement bank account, and the Board allotted the corresponding equity shares on 10 July. PAS,3 for this allotment is due by 25 July but has not yet been filed. On 15 July, the company wants to open a second private placement to raise a further ₹30 lakh. It is free to issue the fresh PAS,4 for the second round on 15 July, because the first allotment was completed on 10 July. It is not, however, free to touch the ₹50 lakh already sitting in the bank account, that money stays untouched until PAS,3 for the first round is actually filed with the Registrar.

Conclusion

A company can issue a fresh private placement offer even while PAS,3 for an earlier, already, allotted round is pending, Section 42(3)’s bar is tied to completion of allotment, not to the PAS,3 filing. But this is not the end of the compliance picture: the separate proviso to Section 42(4) bars the company from utilising the money raised in that earlier round until PAS,3 for it is filed, regardless of whether or when a fresh offer is opened. The safer practical discipline is to treat these as two independent checklists running in parallel, proceed with the fresh offer if the earlier allotment is complete, but keep the earlier round’s funds untouched, and file PAS,3 for it, without delay.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).